Governor Bill Walker has proposed a sweeping fiscal plan that has received praise from economists in the state. However, it's worth noting that the plan includes the issuance of $2.5 billion in pension obligation bonds, also known as POBs. POBs are a debt instrument that essentially let local governments pay unfunded pension liabilities by betting that the investment will earn a higher return than the interest costs of the state's pensions.
If this feels slightly familiar, it might be because Detroit did its own $1.4 billion pension bond deal in 2005. Ultimately, the bet was a disaster. Not only was the move labeled by the Detroit Free Press as "the last straw" that led to Detroit filing for Chapter 9 bankruptcy, the deal became a controversial focal point of the city's 2014 bankruptcy trial and was held up as epitomizing the reckless risk taking municipalities should avoid. Now, with $65 billion in savings, Alaska is no Detroit—but this type of move is never taken lightly.
In Detroit, Puerto Rico, and now Alaska, a disturbing trend among cash strapped municipalities is emerging. It seems that when things get tough, the first preference is to walk away from contracts under the cover of creative lawyering and revisionist history calling into question the deals themselves. This is the epitome of short-term thinking.
Interestingly, the political fight that has currently drawn the spotlight in Alaska is not over the wisdom of legislators passing the bond deal, or even any other major element of the Governor's plan, it's over the building where the lawmakers themselves work.